Opinion
B311627
12-12-2023
CONCERNED CITIZENS OF CITY OF INDUSTRY, LLC, Plaintiff and Appellant, v. DAVID PEREZ et al., Defendants and Appellants; MARK RADECKI et al., Defendants and Respondents.
Gilmore Magness Janisse and David M. Gilmore for Plaintiff and Appellant. Larson, Stephen G. Larson, Jonathan E. Phillips, Dana M. Howard and Tyler J. Franklin, for Defendants and Appellants. Foley &Lardner, F. Phillip Hosp V and William N. Lawther for Defendants and Respondents.
NOT TO BE PUBLISHED
APPEALS from a judgment of the Superior Court of Los Angeles County No. BC700716, Michael Paul Linfield, Judge. Affirmed.
Gilmore Magness Janisse and David M. Gilmore for Plaintiff and Appellant.
Larson, Stephen G. Larson, Jonathan E. Phillips, Dana M. Howard and Tyler J. Franklin, for Defendants and Appellants.
Foley &Lardner, F. Phillip Hosp V and William N. Lawther for Defendants and Respondents.
STRATTON, P. J.
Concerned Citizens of City of Industry (CCCI) appeals from a judgment of dismissal, entered after the trial court ruled that CCCI lacked standing to pursue a representative taxpayer's action against the City of Industry and certain city officials (collectively the City defendants) pursuant to Code of Civil Procedure section 526a. As a result of this ruling, CCCI could no longer pursue its related claim on behalf of the City of Industry against David Perez, David M. Perez, Vincent Perez, Christopher Perez and Peter Perez (the Perezes), who were alleged to be the largest private landlords in the City of Industry and owners of businesses which provide or have provided services to the City of Industry. CCCI contends the trial court erred in finding CCCI was a limited liability company and in ruling that a limited liability company lacked standing under section 526a.
Undesignated statutory references are to the Code of Civil Procedure. When the Second Amended Complaint was filed, these officials were Mayor and City Council member Mark Radecki, City Council members Cory Moss and Newell Ruggles, City Planning Commission member Andria Welch, acting City Attorney Jamie Casso, and acting Assistant City Attorney Bianca Sparks. The SAC alleges that Welch and Ruggles own a company which provides services to the City of Industry.
The trial court also denied anti-SLAPP motions brought by the City defendants and the Perezes and denied attorney fees to plaintiff CCCI as the prevailing party. CCCI contends the trial court abused its discretion in denying attorney fees.
The Perezes also cross appeal from the order denying their anti-SLAPP motion. They contend that CCCI's cause of action labelled "RICO" placed CCCI's first amended complaint (FAC) outside the public interest exception to an anti-SLAPP motion, and that the motion should have been granted on the merits.
Racketeer Influenced and Corrupt Organization Act (18 U.S.C. § 1961 et seq.) (RICO).
We hold that a limited liability company has standing to bring a representative action under section 526a, but not to bring such an action in its own right. Its representative standing is contingent on proof that its members satisfy the individual standing requirements. We find CCCI did not offer evidence that any of its members had standing as individuals. The action was properly dismissed on the basis of CCCI's lack of standing.
We also hold that the trial court properly denied the Perezes' anti-SLAPP motion. (The City defendants have not contested the court's denial of their motion.) We find no abuse of discretion in the trial court's decision not to award CCCI prevailing party attorney fees on the Perezes' motion or the City defendants' anti-SLAPP motion. We affirm the judgment.
BACKGROUND
The City of Industry is, as the name suggests, a city which is more commercial than residential. It has thousands of businesses and only a few hundred residents. The City of Industry is managed by a city council made up of residents of the city. About 90 percent of the housing in the city is owned by the City of Industry through a housing authority managed by the City Manager, or by the members of the Perez family.
CCCI filed its complaint in this matter on April 4, 2018. The operative Second Amended Complaint (SAC) alleges that city-owned housing is rented at artificially low rates and is used as a way to control what happens in the city. The SAC alleges the City of Industry is corrupt and regularly engages in gifts of public funds, waste, and ultra vires acts which benefit members of the Perez family and individuals who cooperate with them. The SAC alleges the Perezes received gifts of public funds in the form of loans which were not repaid and free use of city property; were awarded contracts worth hundreds of millions of dollars without competitive bidding or appropriate oversight; and caused the city to incur and pay a substantial fine for work performed by a Perez family-owned business, a fine which should have been paid by the business.
Following several demurrers and anti-SLAPP motions by the City defendants and the Perezes, the SAC alleged two viable causes of action. The first cause of action is labelled as a private attorney general/representative action against the City defendants and seeks to stop ongoing waste and to recover for the benefit of the City of Industry amounts improperly given as gifts or paid when a conflict of interest existed; the other cause of action is labelled a representative action against the Perezes to recover on behalf of the City of Industry amounts improperly given to or retained by the Perezes.
DISCUSSION
I. CCCI's Appeal
A. Standing to Bring a Taxpayer's Action
In all versions of the complaint in this dispute, CCCI alleged it was an "unincorporated association made up of individuals that reside in the City of Industry and individuals or entities that conduct business and/or lease property within the City of Industry." For purposes of the demurrers brought by the defendants, the trial court treated the allegations of the complaint as true.
After conducting discovery, the City defendants moved to dismiss the action on the ground that CCCI was in fact a limited liability company, and that such entities lack standing to bring actions under section 526a. The trial court agreed and dismissed the action. CCCI contends the trial court erred on both grounds: It is not a limited liability company and even if it were, it had standing to bring a representative action under section 526a.
"' "Both standing and the interpretation of statutes are questions of law to which we typically apply a de novo standard of review." '" (San Diegans for Open Government v. Fonseca (2021) 64 Cal.App.5th 426, 436.) However, we review any underlying factual determinations by the trial court for substantial evidence and are bound by those determinations supported by substantial evidence. (Ibid.) Under the substantial evidence standard we view the evidence and draw inferences in favor of the prevailing party and disregard conflicting evidence. (See City of San Buenaventura v. United Water Conservation Dist. (2022) 79 Cal.App.5th 110, 119-120.)
B. Standing Generally
In our case, section 526a provides: "An action . . . may be maintained . . . either by a resident therein, or by a corporation, who is assessed for and is liable to pay, or, within one year before the commencement of the action, has paid" certain specified taxes. (§ 526a, subd. (a).)
As the California Supreme Court recently explained, the word "maintain" in a statute can be understood as imposing a continuous standing requirement. Looking back at its decision in Grosset v. Wenaas (2008) 42 Cal.4th 1100, 1104 (Grosset), a shareholder derivative action, the Court noted that it had addressed the meaning of the phrase "may be instituted or maintained" when it "confronted the question of whether a shareholder-plaintiff 'lacks standing to continue litigating [a] derivative action' brought on behalf of a for-profit corporation 'because he no longer owns stock in [the corporation]." (Turner v. Victoria (2023) 15 Cal.5th 99, 115 (Turner).) This phrase appears in Corporations Code section 800, which provides: "No action may be instituted or maintained in right of any domestic or foreign corporation by any holder of shares or of voting trust certificates of the corporation" unless certain conditions exist including some form of share ownership. (Corp. Code, § 800, subd. (b).) The Court "reasoned that '[t]he phrase "instituted or maintained" (italics added) appears on its face to be more restrictive than the sole term "instituted" . . . [citation], and it seems to imply that only a shareholder may initiate or maintain a derivative action.' (Grosset at p. 1111.) In other words, [Corporation Code] section 800 appears to contain a continuous ownership requirement, such that a shareholder who no longer owns shares in a corporation may not maintain a suit brought pursuant to the provision. (See Grosset, at pp. 1113-1114 [stating that although 'the "instituted or maintained" language does not clearly impose it,' the language 'seems to point to a continuous ownership requirement'.])" (Turner, at p. 115.)
Turning to the history of section 526a, we see that both residency and payment of a certain kind of tax are required for standing under section 526a.
Section 526a "represents a legislative decision to create judicial access for parties that would not otherwise be eligible to seek relief under sections 367 or 1086." (Weatherford v. City of San Rafael (2017) 2 Cal.5th 1241, 1249 (Weatherford).) "[B]ecause the Legislature's enactment of section 526a marked a departure from the common law approach to taxpayer standing, our case law therefore recognizes both the breadth and corresponding limits of who may bring suit pursuant to section 526a." (Ibid., italics added.)
The history of section 526a shows that this limitation was accomplished by imposing a residency requirement. "Prior to the 1909 adoption of section 526a, we held that, as a general matter, taxpayers had 'such an interest in the proper application of [public] funds' that they could 'maintain an action' to enjoin the illegal expenditure of public funds. [Citations.] [But,] the language of section 526a explicitly indicates the Legislature's intent to 'limit the right to sue in this kind of case, for it clearly altered the common law, which required only that the plaintiff be a taxpayer supporting the governmental entity whose act is sought to be challenged' and did not impose a residency requirement. [Citations.] Section 526a's requirement that an individual plaintiff be a 'citizen resident therein,' thus narrowed the scope of taxpayer standing relative to the common law." (Weatherford, supra, 2 Cal.5th at pp. 1249-1250., italics added.)
When the Legislature amended section 526a in response to Weatherford to define resident, it made clear the continued importance of residency. An August 21, 2018 report prepared for the California State Assembly entitled "Concurrence in Senate Amendments" for Assembly Bill No. 2376 provides in part: "In addition, for the purpose of this statute, the bill defines the term 'resident' to mean a person who lives, works, owns property, or attends school in the jurisdiction of the defendant local agency. According to the author, this provision is intended to clarify that the resident taxpayer eligible to file suit is not just someone who paid a minimal amount of sales tax on a cup of coffee while passing through town, but instead is a person who has established physical presence in the local jurisdiction." (Assem. Conc. Sen. Amends to Assem. Bill No. 2376 (2017-2018 Reg. Sess.) as amended July 5, 2018, p. 3, italics added.)
We note that under the dissent's view, a person could work in a retail store as a seasonal worker, file a lawsuit, and then naturally move on. This would eviscerate the purpose of having a residency requirement, which is to ensure that the taxpayer also has established a physical presence in the local jurisdiction, a presence which we see as more than transient. A broad interpretation of the term "resident" is also at odds with the statute, which uses the present tense:" 'Resident' means a person who lives, works, owns property, or attends school in the jurisdiction of the defendant local agency." (§ 526a, subd. (d)(2).) The statute does not provide that a resident is someone who has lived in the jurisdiction or worked in the local agency within a year of filing the lawsuit as it does for the taxpayer requirement. If it did, we might be more inclined to adopt the dissent's perspective.
Comparison to shareholder derivative actions is also instructive. Derivative actions require plaintiffs to remain shareholders so they have a financial motivation to vigorously pursue the action. If a resident taxpayer severs their residency connection to the local agency, where is the incentive to vigorously pursue the lawsuit on behalf of the remaining citizens of the jurisdiction?
This repeated emphasis on a taxpayer's residence shows that it is a fundamental part of the standing requirement, arguably an even more important one than paying a tax. Virtually everyone pays sales tax, for example, but the Legislature chose not to extend standing to everyone who pays sales tax to a local agency.
Thus, if the word "maintain" in section 800 requires the plaintiff to satisfy the initial standing requirements of section 800 throughout the pendency of the action, then "maintain" should be given the same meaning in section 526a. As we have explained, residency is a key component of standing. Maintaining standing for a section 526a action should require a plaintiff to satisfy the initial residency requirement throughout the action. (See Turner, supra, 15 Cal.5th at p. 115 [presence of phrase "or maintained" in a statute generally" 'point[s] to'" continuous standing requirement.].) With these concepts in mind, we turn to the particular facts of this appeal.
1. Plaintiff is a Limited Liability Company.
During discovery, defendants took the deposition of Curtis Fresch, designated by CCCI as the person most qualified to testify about the "formation and organization of PLAINTIFF," the "[i]dentification of all organizational documents of PLAINTIFF," the "factual basis for ANY contention that PLAINTIFF has standing," and the "factual basis for the allegation . . . that PLAINTIFF is an association." Based on Fresch's deposition testimony that CCCI was a limited liability company, the City defendants moved to dismiss the action for lack of standing.
Relying on Fresch's deposition testimony, the trial court then found that CCCI was a limited liability company, not an unincorporated association. CCCI contends the trial court erred in making this finding. We review the finding for substantial evidence. (Citizens for Amending Proposition L v. City of Pomona (2018) 28 Cal.App.5th 1159, 1174.)
At his deposition, Fresch was shown the Articles of Organization for a limited liability company named Concerned Citizens of City of Industry, LLC. These Articles show David Gilmore, plaintiff's attorney, as the agent for service of process, with a Fresno address; Gilmore's law firm is or was located at that address.
Fresch's deposition testimony shows that both he and plaintiff's lawyer Gilmore were aware of the LLC before Fresch's deposition. Gilmore's declaration in opposition to the motion to dismiss confirms this. Gilmore declared: "I became aware shortly before, as I recall, the complaint was filed in April of 2018, that someone had filed articles of organization for a limited liability company also called Concerned Citizens of City of Industry. I did not prepare or file that document. When I saw the document I was made aware that I was designated as the agent for service of process." The Articles document was signed by a person named Laura Tran. There is no evidence of her identity in the record on appeal. We recognize that the trial court sustained objections to the entirety of the Gilmore declaration primarily on the ground that attorney statements are not evidence. We note that Gilmore's status as an attorney did not bar him from making statements of fact under oath in a declaration.
Fresch stated he had seen the document before, probably in a group of documents plaintiff's attorney had given him. Defense counsel asked: "Did the association authorize the filing of [that document] with the California Secretary of State on or about March 20, 2018?" Fresch replied: "I'm sure it did." Defense counsel next asked: "Isn't it correct that the association is actually a limited liability company?" Fresch replied: "Yes."
Plaintiff's counsel objected: "Lacks foundation."
After the City defendants moved to dismiss, Fresch submitted a declaration in which he attempted to change or explain his deposition testimony. The trial court was not required to accept this explanation or find Fresch's declaration credible; and it did not. The trial court accepted Fresch's deposition testimony, which is substantial evidence to support the trial court's finding that the plaintiff in this action, CCCI, is a limited liability company.
Fresch declared: "Although I answered a question to the effect that the association was actually a limited liability company, that answer was in error if it is interpreted to mean that makes the limited liability company the Plaintiff in this case. It is not. The correct answer is that there appears to be such a limited liability company but it is neither the Plaintiff nor am I a part of any such limited liability company."
2. A Limited Liability Company Has Standing to Bring a Representative Action If Its Individual Members Meet Standing Requirements.
The trial court found that the language of section 526a was clear and unambiguous and only resident individual taxpayers and corporations could bring an action under that section. Section 526a provides that a taxpayer action may be brought by a "person, acting in its behalf, either by a resident therein, or by a corporation, who is assessed for and is liable to pay, or, . . . has paid, a tax that funds the defendant local agency[.]" (§ 526a, subd. (a).) The section defines "resident" as "a person who lives, works, owns property, or attends school in the jurisdiction of the defendant local agency." (Id., subd. (d)(2).)
Subdivision (a) describes these taxes as "including, but not limited to, the following: [¶] (1) An income tax. [¶] (2) A sales . . . or transaction . . . tax initially paid by a consumer to a retailer. [¶] (3) A property tax, including a property tax paid by a tenant . . . [¶] (4) A business license tax." (§ 526a, subd. (a).)
The trial court nevertheless acknowledged that there is authority permitting an unincorporated association to bring a representative action under section 526a, but it found that authority did not extend to CCCI as a limited liability company. We review this determination de novo. (Citizens for Amending Proposition L v. City of Pomona, supra, 28 Cal.App.5th at p. 1174.) We disagree with the trial court. However, as discussed below, we agree with the trial court's ultimate dismissal of the action and affirm. (Johnson v. The Raytheon Co., Inc. (2019) 33 Cal.App.5th 617, 627, fn. 9 [when we review trial court's ruling de novo, we may affirm for reasons different than the trial court's reasons].)
We hold that the same authority which permits an unincorporated association to bring an action under section 526a also permits CCCI to do so. That authority is Taxpayers for Accountable School Bond Spending v. San Diego Unified School Dist. (2013) 215 Cal.App.4th 1013, 1031 (Taxpayers). The Taxpayers court determined that a "representative organization" had standing under section 526a "if that organization represents members who, as individuals, would have standing to personally bring that cause of action." The court noted "it has been held a representative organization or association may have standing to bring an action if its members would have had standing to bring that action as individuals." (Taxpayers, at p. 1031, italics added.) Thus, its holding is not limited to unincorporated associations.
Defendants do not suggest that entities other than unincorporated associations are incapable of acting as representative organizations. They are capable. (See, e.g., Residents of Beverly Glen, Inc. v. City of Los Angeles (1973) 34 Cal.App.3d 117, 120 [plaintiff bringing representative action was a nonprofit corporation]; Midpeninsula Citizens for Fair Housing v. Westwood Investors (1990) 221 Cal.App.3d 1377, 1387-1388 [plaintiff was nonprofit corporation; as a general proposition, "if the members of a group individually would have standing to sue, the group itself has standing to sue on their behalf."].) Defendants do not point to anything in the nature of a limited liability company, and we see nothing, which would render it, in particular, incapable.
Defendants' primary contention is that permitting limited liability companies to bring representative actions would "eviscerate all meaning and boundaries of Section 526a's standing requirements and 'expand the concept of statutory taxpayer standing beyond that already recognized by law.' [Citation.]" We fail to see how such evisceration would occur. Only organizations with members who have standing as resident individual taxpayers (or corporations) under section 526a would have standing to being an action in a representative capacity. There is no dispute that those individuals could file suit in their own names. We see no difference between, for example, 10 individual resident taxpayers filing an action in their own names and an organization (whatever its formal structure) filing an action in the organization's name on behalf of those 10 individual resident taxpayers, assuming they are members of the organization.
We note the City defendants are quoting from Cornelius v. Los Angeles County Metropolitan Transportation Authority (1996) 49 Cal.App.4th 1761, 1779. The court made that comment in declining to find standing under section 526a based on the payment of income tax, that is, that permitting standing based on the payment of income tax would impermissibly expand taxpayer standing. The Legislature subsequently amended section 526a to clarify that payment of income tax did confer standing.
Defendants point out that even if CCCI could have standing as a representative organization, CCCI would have to show that one or more of its members were resident taxpayers of the City. Defendants contend that the trial court "impliedly" found that CCCI had no such members.
We disagree. Such a finding was unnecessary to the court's ruling that the statute itself did not allow standing for limited liability companies. There was no need for the trial court to reach the issue of whether CCCI's individual members had standing, and we see no indication that the trial court did so.
3. CCCI's Individual Members Had No Individual Standing.
Defendants contend that CCCI was required to offer evidence that at least one of its members had standing as an individual to bring and maintain a section 526a action and that CCCI failed to do so. We agree.
Fresch, the person most qualified to testify about CCCI membership, identified only two other members of CCCI: Troy Hill and Danny Molina. Fresch himself testified that he had never lived in the City of Industry and there is no evidence that he owned property or attended school there. Fresch had been an employee of the City, but that employment ceased in December 2016, well before this action was filed. Thus, he was not a resident within the meaning of section 526a, and lacked standing to bring an action under that section.
Hill was a taxpayer and a resident of the City until August 2019; thus, he lost his residency status while this action was pending. Hill acknowledged in his declaration that he was no longer a resident. Hill stated that he brought a lawsuit claiming that he was evicted in retaliation for participating in this action, but his declaration states that he settled the retaliation lawsuit and then moved out of the City.
Molina, a resident of the City of Industry until late December 2018 or early January 2019, also lost his residency status while this action was pending.
The deposition of Fresch was taken in November 2019. At that point none of the three identified members had standing. Generally "standing must exist at all times until judgment is entered and not just on the date the complaint is filed." (Californians for Disability Rights v. Mervyn's, LLC (2006) 39 Cal.4th 223, 233; see discussion above in section B.) Even assuming for the sake of argument that this action could continue if CCCI had obtained new members with standing after Fresch's deposition, there is nothing in the record on appeal to suggest that CCCI acquired any new members in the interval between the deposition and the judgment of dismissal. Since no CCCI member had individual standing, CCCI did not have standing to bring a representative action.
4. CCCI Does Not Have Standing in Its Own Right to Bring a Section 526a Action.
CCCI contends that because a limited liability company is defined as a "person" for most purposes under Corporations Code section 17701.05, it should be treated like a "person" under section 526a. Assuming for the sake of argument that this is a correct reading of the statutes, "persons" have to be "residents," and there is nothing in the record to suggest that CCCI "lives, works, owns property, or attends school in the jurisdiction of the defendant local agency." (§ 526a, subd. (d)(2).)
CCCI also contends that "a limited liability company is a corporation for all intents and purposes" and has "every attribute of a corporation except as to the manner in which it is taxed." CCCI concludes that a limited liability company should be treated like a corporation for purposes of section 526a.
We cannot agree that the two entities are the same for all intents and purposes. While there are many similarities between the two entities, as detailed by CCCI in its opening brief, there are also many differences. The structure and governance of the two entities is quite different. There are differences in taxation of the two entities, even when comparing a limited liability company to a Subchapter S corporation, which has a passthrough taxation structure similar to a limited liability company.
The Legislature has chosen to treat corporations very differently than individuals under section 526a. Individuals must meet the definition of a resident, while a corporation need not. CCCI has failed to provide legal authority that the Legislature could not elect to also treat corporations differently than other types of business entities, no matter how similar those entities are to corporations.
If the members of a limited liability company wish the entity to be treated as a corporation, California law provides a mechanism for the company to convert. (See Corp. Code, §§ 17710.02 &17710.03.)
C. Denial of Attorney Fees
The trial court denied the two anti-SLAPP motions after determining it was bound by the allegations of the FAC, which supported a finding that the statute's public interest exception to dismissal applied. (We discuss this exception more thoroughly below.) CCCI contends the trial court abused its discretion in denying its motion for attorney fees as the prevailing party in both the City defendants' anti-SLAPP motion and the Perezes' anti-SLAPP motion. We consider the attorney fees issue for the Perezes' motion in connection with our discussion of the substance of that motion, in section II below. CCCI has not shown an abuse of discretion in the denial of fees for the City defendants' motion.
Unlike a defendant who prevails on an anti-SLAPP motion, a prevailing plaintiff is not necessarily entitled to recover fees. A trial court awards costs and attorney fees to a plaintiff who prevails in defending against an anti-SLAPP motion "pursuant to [s]ection 128.5" if the court finds the motion was "frivolous or . . . solely intended to cause unnecessary delay." (§ 425.16, subd. (c)(1).) This means that"' "a court must use the procedures and apply the substantive standards of section 128.5 in deciding whether to award attorney fees under the anti-SLAPP statute." '" (Rudisill v. California Coastal Com. (2019) 35 Cal.App.5th 1062, 1070 (Rudisill).) To meet this standard, a party requesting the award must show that" 'any reasonable attorney would agree the motion was totally devoid of merit.'" (Ibid.) A trial court's ruling ordering attorney fees for a frivolous anti-SLAPP motion is usually reviewed under the abuse of discretion standard. (Ibid.)
When, as here, the trial court summarily denies attorney fees as a sanction and gives no explanation for its decision," 'we must presume the court either found the [motion] was not totally without merit or was not prosecuted in bad faith or for an improper motive, or any combination of these factors. '" (Jespersen v. Zubiate-Beauchamp (2003) 114 Cal.App.4th 624, 634.)
CCCI contends that both motions to strike were not well taken "because the operative complaint [the motions were brought as to the FAC] was within the public interest exception on the face of the pleading [and] Respondents raised many arguments in the special motions that were not based on the face of the pleadings even in light of the case law holding otherwise." CCCI contends at length that the operative complaint did not seek any relief for CCCI but only for the general public. CCCI does not differentiate between the arguments in City defendants' motion and in the Perezes' motion, which, as we discuss below, proffer quite different arguments. CCCI does not analyze any of the City defendants' arguments that CCCI claims were improper because those arguments were not based on the face of the complaint. CCCI does not even provide record citations for its arguments. CCCI has forfeited this claim as to the City defendants. (United Grand Corp. v. Malibu Hillbillies, LLC (2019) 36 Cal.App.5th 142, 153.)
Even taking CCCI's argument at face value, CCCI has not rebutted the presumption that the trial court found the action was not frivolous or made for purposes of delay. As the City defendants point out, CCCI's arguments focused on the sufficiency of its standing allegations. Specific allegations about the plaintiff's interest in the action or the actual prayer for relief can defeat broader allegations that the action is being brought in the public interest and that plaintiffs would not receive any greater relief than the general public. (See, e.g., Cruz v. City of Culver City (2016) 2 Cal.App.5th 239, 249-250 [plaintiffs asked only for declaration that city's conduct of meeting violated the Ralph M. Brown Act (Brown Act) (Gov. Code, §54950 et seq.) which they alleged would give them no greater relief than the public, but their alleged status as homeowners gave them an individual stake in meeting's outcome which defeated public interest exception].) The City defendants contend this issue was and is the subject of developing case law so that finding their motion frivolous was not warranted. (See, e.g., Takhar v. People ex rel. Feather River Air Quality Management Dist. (2018) 27 Cal.App.5th 15 [public interest exception did not apply where plaintiff alleged a benefit from the action to others similarly situated but relief sought would benefit plaintiff specifically].) We agree. CCCI has not shown that this is a situation where" 'any reasonable attorney would agree the motion was totally devoid of merit.'" (Rudisill, supra, 35 Cal.App.5th at p. 1070.)
II. Perezes' Cross Appeal
A. The Perez Defendants' Anti-SLAPP Motion Was Properly Denied.
In denying the City defendants' anti-SLAPP motion, the trial court found the FAC fell within in the public interest exception of section 425.17 and therefore should not be stricken. The Perez defendants then brought their own anti-SLAPP motion, contending the trial court had not addressed the fourth cause of action in the FAC, entitled "Criminal Enterprise/RICO" and that this cause of action was incompatible with the public interest exception. The Perezes contend the trial court erred in denying their motion because the RICO statute requires a plaintiff bringing a private RICO action to allege a particularized harm to the plaintiff's business or property and the plaintiff may only seek recovery for itself. We affirm the trial court's denial of the motion.
We review a trial court's denial of an anti-SLAPP motion de novo. (Wang v. Wal-Mart Real Estate Business Trust (2007) 153 Cal.App.4th 790, 801; All One God Faith, Inc. v. Organic &Sustainable Industry Standards, Inc. (2010) 183 Cal.App.4th 1186, 1199.)
The public interest exception to the anti-SLAPP statute applies to "any action brought solely in the public interest or on behalf of the general public if all of the following conditions exist: [¶] (1) The plaintiff does not seek any relief greater than or different from the relief sought for the general public or a class of which the plaintiff is a member. A claim for attorney's fees, costs, or penalties does not constitute greater or different relief for purposes of this subdivision. [¶] (2) The action, if successful, would enforce an important right affecting the public interest, and would confer a significant benefit, whether pecuniary or nonpecuniary, on the general public or a large class of persons. [¶] (3) Private enforcement is necessary and places a disproportionate financial burden on the plaintiff in relation to the plaintiff's stake in the matter." (§ 425.17, subd. (b).) If even one cause of action in the complaint does not satisfy the public interest exception, the entire complaint falls outside section 425.17 and must satisfy the requirements of section 425.16. (Club Members for an Honest Election v. Sierra Club (2008) 45 Cal.4th 309, 319-320 (Club Members).)
"To determine whether [a] lawsuit met those definitions, 'we rely on the allegations of the complaint because the public interest exception is a threshold issue based on the nature of the allegations and scope of relief sought in the prayer.' ([People ex rel. Strathmann v. Acacia Research Corp. (2012) 210 Cal.App.4th 487, 499]; see Club Members, supra, 45 Cal.4th at p. 316 ['If a complaint satisfies the provisions of the applicable exception, it may not be attacked under the anti-SLAPP statute.' (Italics added)]; accord [Northern Cal. Carpenters Regional Council v. Warmington Hercules Associates (2004) 124 Cal.App.4th 296, 300] [concluding action was brought solely in the public interest based on allegations of the complaint].)" (Tourgeman v. Nelson &Kennard (2014) 222 Cal.App.4th 1447, 1460 (Tourgeman).) The "merits" of the complaint are reached when the public interest exception does not apply, and the court analyzes the defendant's motion under section 425.16. (See Wilson v. Parker, Covert &Chidester (2002) 28 Cal.4th 811, 821 [under § 425.16, subd. (b)(1)), the plaintiff" 'must demonstrate that the complaint is both legally sufficient and supported by a sufficient prima facie showing of facts to sustain a favorable judgment if the evidence submitted by the plaintiff is credited.' "].)
The fourth cause of action in the FAC alleges: "68. The actions of the Defendants herein constitute a criminal enterprise and the different actions herein are in violation of the law. Each such violation is a predicate act as that term is used in RICO. Plaintiff is informed and believes that based on the statements made by Mr. Gonzalez when he resigned that further illegal actions have been or are being taken. Discovery is necessary to discover what the other illegal actions were that Mr. Gonzalez referenced. [¶] 69. No governmental official is immune from liability for acts of corruption as alleged herein so each Defendant, whether a private citizen, City Attorney or a member of the City Council is liable for the wrongful acts alleged herein. [¶] 70. Plaintiff is acting here to address the wrongful actions of the Defendants for the benefit of the citizens of the City of Industry and to protect the interests of the public. The recovery sought here is for the benefit of the City of Industry. The amount of the damages will be shown according to proof but the amount is substantial. [¶] 71. Plaintiff is entitled to recovery of fees and costs while acting as private attorney general pursuant to Code of Civil Procedure section 1021.5."
In deciding the Perez defendants' motion, the court focused on these allegations in the complaint. The trial court found that based on these allegations, the public interest exception applied. The court noted that the complaint alleges CCCI is acting for the benefit of the citizens of the City of Industry and to protect the public interest, and that CCCI sought only attorney fees and costs for itself. The court acknowledged the references to substantial "recovery" but noted that any recovery was alleged to be for the benefit of the City of Industry.
The trial court recognized that the Perez defendants had provided authority raising questions about the legal viability of the fourth cause of action as pled, but it found that the matter was more appropriately decided in connection with the demurrer brought by the Perezes. The trial court ultimately agreed with the Perezes and sustained their demurrer to the RICO cause of action with leave to amend. When CCCI filed its SAC, it alleged civil conspiracy in lieu of RICO. Thus, there is no dispute that the fourth cause of action as pled in the FAC did not state a viable RICO claim. It does not allege the required particularized injury to the plaintiff's property or business and seeks relief not available in a private RICO action, specifically a recovery on behalf of a governmental entity.
The Perezes cite two unpublished federal district court opinions to show that a RICO action may not be brought as a qui tam action. Both cases rely on the plain language of section 1964 of title 18 of the United States Code. That section does not contain any qui tam provisions for a private plaintiff. The federal courts do not agree on whether injunctive relief is available to a private plaintiff in a RICO action. As the Perezes point out, the Ninth Circuit has held that it is not. The Seventh Circuit has held that it is. (National Organization for Women, Inc. v. Scheidler (7th Cir. 2001) 267 F.3d 687, 695-700, reversed on other grounds by Scheidler v. National Organization for Women, Inc. (2003) 537 U.S. 393, 397 [expressly declining to reach issue of injunctive relief for private plaintiffs].) The United States Supreme Court still has not ruled on this issue.
The Perezes contend that because a private RICO claim can only be brought to redress private injury, even a RICO claim which is defective because it does not seek private redress is still sufficient to take a cause of action outside the public interest exception. In effect, the Perezes want us to imply a prayer for redress of private injury in order to defeat the public interest exception. We cannot do so.
Section 425.17 evaluates the public interest exception based on the allegations of the complaint, and there are no allegations of private injury or requests for private redress in the fourth cause of action. While the title of the fourth cause of action is RICO and there is one use of the term RICO in the allegations, we cannot treat that cause of action as a private RICO action simply because it is labelled as one. The label of a cause of action is not controlling. (Nguyen v. Scott (1988) 206 Cal.App.3d 725, 729-730.) A label certainly cannot overcome substantive pleading deficiencies. We would have to add the missing allegations of private injury and delete the request for recovery on behalf of the City of Industry to make the fourth cause of action state a claim under RICO. Nothing in section 425.17 permits us to add or delete allegations in a complaint as part of our evaluation of the public interest exception to a motion to strike.
The Perezes nevertheless contend that the trial court can consider the "nature" of the claims brought by the plaintiff. (People ex rel. Strathmann v. Acacia Research Corp., supra, 210 Cal.App.4th at pp. 499-500; Tourgeman, supra, 222 Cal.App.4th at p. 1461.) Assuming for the sake of argument that those cases permit such analysis, they do not assist us. In both cases, the claim at issue was validly pled, and there was no dispute about the available relief. Those cases shed no light on the proper response to a cause of action which fails to state a viable claim.
The Perezes argue that the trial court can consider the viability of a cause of action at the section 425.17 stage and find that a nonviable cause of action defeats the public interest exception. They rely primarily on Schwarzburd v. Kensington Police Protection &Community Services Dist. Bd. (2014) 225 Cal.App.4th 1345 (Schwarzburd) to support this argument.
We agree that Schwarzburd supplies insight into the proper response to an admittedly nonviable claim, but that insight does not assist the Perezes.
Broadly, we understand the cited passage in Schwarzburd to indicate that, in the absence of a viable Brown Act claim in that case, the petition did not qualify for the public interest exception to an anti-SLAPP motion to strike. As the court noted, on appeal the petitioners had "abandoned" the Brown Act claim they made in the trial court. (Schwarzdurd, supra, 225 Cal.App.4th 1356, fn. 12.) Put differently, we understand that the Court of Appeal assessed the applicability of the public interest exception to petitioners' remaining claim on appeal (that respondents had violated one specific Board policy) and found that claim did not qualify for the exception. We do not conclude the Court of Appeal undertook an independent analysis of the viability of the Brown Act as part of its analysis of the public interest exception. As the Court noted, it was undisputed by the parties that the Brown Act did not apply. While the Court elaborated that the Brown Act did not apply (because it had been temporarily suspended), that explanation follows the amicus curie's invocation of the Brown Act. We understand the remark as a response to amicus, not an analysis of the abandoned Brown Act claim.
The Perezes rely on the following statement in Schwarzburd: "[W]e conclude petitioners cannot satisfy the second prong because their claims do not operate to enforce an important right affecting the public interest. Nor, if successful, would they confer a significant benefit on the general public or a large class of persons. While amicus curiae argues that petitioners laudably seek to enforce the [Brown Act] and the Board's own open meeting requirements, it is undisputed that the Brown Act has no application to this case. Further, the assertion that the requirement calling for Board meetings to end at 10:00 p.m. 'serves to accommodate the needs of these and other residents and thereby to increase public access' is illogical. (See Holbrook v. City of Santa Monica (2006) 144 Cal.App.4th 1242, 1250 [plaintiffs did not show 'that cutting off public comment and input, ending member debate, and preventing the city council from further legislative action at an 11:00 p.m. witching hour benefits the public in any way'].)" (Schwarzdurd, supra, 225 Cal.App.4th at pp. 1351-1352, fn. omitted.)
Thus, Schwarzburd indicates that nonviable claims, which have been abandoned by the plaintiff, are not considered in assessing the applicability of the public interest exception. Applying that reasoning to this case, we would not consider the nonviable, abandoned RICO claim.
Finally, the Perezes contend that the action was not necessary because CCCI could have sued the City directly. They contend that their campaign contributions were not racketeering activity, there is no single allegation linking any of the individuals to any contract with the City, and allegations they settled with the City do not bring them within the confines of the RICO Act. This appears to be an argument that they did not engage in the conduct required to support a RICO claim. That would be a challenge to the merits of the claim, which we do not reach when the public interest exception applies.
As for necessity generally, CCCI alleged in its complaint that this action was necessary because the Perezes controlled the City and so an action against the City alone would not succeed. Specifically, in opposing the motion to strike, CCCI pointed out that the "FAC alleges that making any demands on the City of Industry to address the issues is futile because, for lack of a better way of putting it, the 'fox is guarding the hen house.' (FAC ¶ 2, 8, 9, 30, 41, 44, 51)." Again, in deciding the applicability of the public interest exception, we look at the allegations of a complaint.
B. Attorney Fees
CCCI contends the trial court abused its discretion in denying attorney fees to the Perez defendants. CCCI argues the Perez defendants' motion was untimely. They also argue it should not have been filed because it challenged the same pleading on the same grounds as the City defendants' motion, which had already been denied. We do not agree.
CCCI and the Perez defendants agreed to extend the Perezes' time to file its motion to 30 days after the trial court entered its order on the City defendant's motion. That date fell on October 21, 2018, which was a Sunday. Generally, when the filing deadline of an anti-SLAPP motion falls on a weekend, the deadline is extended to the next day that is not a weekend or holiday. (§§ 12a, 135; Gov. Code, § 6700, subd. (a)(1).) Here that day was Monday October 22, 2018, the date on which the Perezes filed their motion. We agree with the Perezes that the timing of the hearing on the motion primarily falls on the court, not the moving party. (See Karnazes v. Ares (2016) 244 Cal.App.4th 344, 352.)
We agree with the Perezes that the trial court erred in finding their motion to be untimely filed but see no prejudice to them from this error. The trial court considered the motion on its merits.
The Perez defendants' written motion did repeat certain arguments previously made by the City defendants, for the purpose of preserving the Perezes' own right to appeal. Oral argument was limited to the RICO cause of action, which the trial court had not addressed in the City defendants' motion. CCCI agreed the two motions could be heard separately, and at least as to the written motions, some duplication of argument was inevitable to preserve claims for appeal. The trial court did not dispute the claim that it had not previously addressed the RICO claim and allowed argument on that issue. We see no basis to find that the Perez defendants filed their motion for a frivolous purpose or to improperly delay proceedings.
DISPOSITION
The judgment is affirmed. CCCI to bear costs on the appeal. The Perezes to bear costs on the cross-appeal.
I concur: WILEY, J.
VIRAMONTES J., Concurring and Dissenting.
Code of Civil Procedure section 526a (section 526a) provides, in relevant part, "An action . . . may be maintained . . . by a resident therein . . . who is assessed for and is liable to pay, or, within one year before the commencement of the action, has paid, a tax that funds the defendant local agency ...." (Ibid., portions of the statute excised for clarity.)
A resident can assert standing based on having paid a tax within one year before the commencement of the action-a singular event governed by a defined timeframe. (§ 526a.) Section 526a plainly allows standing based on taxes that have already been incurred, as a resident who "within one year before the commencement of the action, has paid, a tax" can pursue an action. (Ibid.) Section 526a is devoid of any requirement that a resident be liable to incur future taxes when maintaining a suit. (Ibid.) While the majority points to the residency definition which is framed in the present tense to impose a continuous residency requirement for standing, section 526a's own standing requirements reject that view. By its own terms, the statute identifies who has standing, and it includes residents who paid a tax "within one year" of filing suit. (Ibid.)
Further, section 526a contemplates that "[a]n action . . . may be maintained" by a resident with standing. (Ibid.) "Maintain[ing]" an action would allow the resident taxpayer to continue prosecuting the action based on a tax that already has been paid. (Ibid.) Section 526a does not provide that plaintiffs can initiate an action if a resident pays a tax, rather a resident taxpayer can "maintain" that lawsuit. (Ibid.) Here, one member of Concerned Citizens of City of Industry, LLC (CCCI), Hill, was a resident taxpayer when a complaint was filed, and thus, CCCI can "maintain" that suit on Hill's behalf.
In addition, the record also establishes that Molina lived in the City of Industry when the suit was filed, but does not establish that Molina paid any taxes as the record is silent on that point. Molina may also be able to adduce facts regarding tax payments if given an opportunity to do so on remand.
Further, I depart from reading adopted by the majority for three additional reasons. First, the Legislature has defined a broad and peculiar kind of standing specific to taxpayers. (§ 526a.) As defined by the code, taxpayers' standing does not extinguish when they are no longer current or future taxpayers, as a resident's assessment or payment of tax required for standing is backward looking. (Ibid.) In other words, once a plaintiff has standing, that plaintiff "maintains" standing. While the majority does point to the residency requirement in the taxpayer statute, citing to Weatherford v. City of San Rafael (2017) 2 Cal.5th 1241, 1249, both Hill and Molina lived in the City of Industry. Both CCCI members have a significant link to the city and cannot be compared to someone passing through the locality. Regardless, Hill satisfies the elements of taxpayer standing.
Second, I also disagree with the majority's analogy to the standing rule in derivative actions, which requires a plaintiff to maintain continuous stock ownership throughout the pendency of the litigation, to impose a continuous residency requirement under section 526a. Derivative actions have unique limitations because of unique concerns. The continuous ownership rule is rooted in the financial incentives of litigants, "[o]nce [derivative plaintiffs] cease[] to [be stockholder[s] in the corporation on whose behalf the suit was brought], [they lack] standing because [they] 'no longer [have] a financial interest in any recovery pursued for the benefit of the corporation.'" (Grosset v. Wenaas (2008) 42 Cal.4th 1100, 1114 (Grosset).) Courts impose strict requirements on derivative actions because they allow shareholders to "intrude upon a board's authority." (Id. at p. 1109.) Thus, in limiting standing under derivative actions, the Supreme Court explained, "Not only does a requirement for continuous ownership further the statutory purpose to minimize abuse of the derivative suit, but the basic legal principles pertaining to corporations and shareholder litigation all but compel it." (Id. at p. 1114.)
In contrast to the strict standing requirements for a derivative action, the standing requirement under section 526a has been" 'considerably relaxed.'" (California DUI Lawyers Association v. California Department of Motor Vehicles (2018) 20 Cal.App.5th 1247, 1258.)" 'This relaxation is a consequence of the salutary goal of section 526a: "The primary purpose of this statute, originally enacted in 1909, is to 'enable a large body of the citizenry to challenge governmental action which would otherwise go unchallenged in the courts because of the standing requirement.'" '" (Ibid.) "[S]ection 526a represents a legislative decision to create judicial access for parties that would not otherwise be eligible to seek relief ...." (Weatherford v. City of San Rafael, supra, 2 Cal.5th at p. 1249.) Courts must construe section 526a liberally to achieve its remedial purpose. (Blair v. Pitchess (1971) 5 Cal.3d 258, 268.) This liberal construction further counsels against the stricter reading of the majority. Moreover, the majority also relies on Turner v. Victoria (2023) 15 Cal.5th 99, but there, the Supreme Court rejected the "continuous directorship" rule by holding that nonprofit directors can continue prosecuting a suit even after they are removed from their director positions. (Id. at p. 123.) Here, as there, the Legislature's goal in providing expansive standing to address fraud weighs against requiring that a plaintiff be a continuous resident taxpayer to prosecute an action. (See ibid.) Under section 526a, resident taxpayers are empowered to prevent fraud and waste, and under the statute's plain language they are allowed to finish what they are empowered to start.
Third, the plain language of Corporations Code section 800 for derivative actions is inapposite to the taxpayer standing statute. Corporations Code section 800 is written in the negative," '[n]o action may be instituted or maintained in right of any . . . corporation by any holder of shares . . . of the corporation . . .' unless conditions such as the contemporaneous stock ownership requirement are met." (Grosset, supra, 42 Cal.4th at p. 1111 [quoting Corp. Code, § 800, in part, and summarizing it, in part] italics omitted.) As written, "instituted" and "maintained" mean different things. To "institute" an action is to file it, and to "maintain" an action is to continue prosecuting it. In the statute, both terms "seem[] to imply that only a shareholder may initiate or maintain a [lawsuit]" but even on this front the Supreme Court notes that this language "does not clearly impose" a continuous ownership requirement. (Id. at p. 1114.) Nonetheless, because derivative actions pose a risk of litigation "abuse" and because shareholder litigation all but "compel[s]" this outcome, the Supreme Court held that when someone is no longer a shareholder, that person can no longer "maintain" a derivative action. (Ibid.) Under that provision, the word "maintain" becomes restrictive because it requires a plaintiff to remain a shareholder in order to institute or maintain the litigation. (Id. at p. 1111.)
In contrast, section 526a affirmatively allows a resident taxpayer who paid or was assessed a tax "within one year before the commencement of the action" to "maintain[]" the suit. (§ 526a.) When used affirmatively, as in the taxpayer statute, the word "maintain" becomes less-restrictive as the plaintiff can continue prosecuting the case until completion. (See ibid.) In short, the taxpayer statute imposes no requirement that the resident taxpayer continue paying taxes, and unlike in a derivative action context, imposing this requirement is at odds with the section 526a's plain language and its broader goals.
Interestingly, the Supreme Court remanded a question regarding whether a taxpayer plaintiff's decision to leave the state affected that plaintiff's ability to continue prosecuting a taxpayer suit. (Weatherford v. City of San Rafael, supra, 2 Cal.5th at p. 1245, fn. 2.) The Court expressed no view on the question. (Ibid.)
Because I would allow CCCI to pursue its suit due to the standing of its members, I respectfully dissent. I agree with the remainder of the decision as CCCI cannot pursue an action independent of its members' standing. I also concur with the majority conclusions that the trial court did not err in denying the Perez Defendants' anti-SLAPP motion or in denying CCCI attorneys' fees for defeating defendants' anti-SLAPP motions. (Code Civ. Proc., § 425.16.)